Slovakia
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1. Insolvency and restructuring procedures
1.1 – What are the main insolvency and restructuring procedures applicable to companies?
Slovak law recognizes two major forms of insolvency: bankruptcy and restructuring proceedings.
Bankruptcy proceeding means the monetization of a company’s assets which is insolvent and its liquidation.
- The company is insolvent if it is illiquid or over-indebted:
- illiquidity means that the company cannot pay its mature monetary claims of at least two creditors and such a delay lasts at least 90 days. It is, however, presumed that the company is solvent if we can anticipate that the company can run the business or manage its assets while its coverage gap (a difference between the amount of its outstanding monetary liabilities and its monetary assets) is less than one tenth of the amount of its outstanding monetary liabilities or, within a period of not more than 60 days, the coverage gap falls below such a threshold;
- over-indebtedness means that the company has at least two creditors and its obligations exceed the total amount of its assets.
- Bankruptcy can be declared by the court on the motion of the company itself (which is mandatory in case of insolvency) or its creditor (permissible only in case of illiquidity).
- The creditors are satisfied from the sold assets of the company. The sale process is made by the insolvency office-holder acting upon the instructions of the creditors’ committee (major creditors representing other creditors of unsecured claims) or secured creditors. If the claim is registered with the collateral (secured claim), the secured creditor is satisfied from the proceeds of sale of the collateral. Unsecured creditors are proportionally satisfied from the unsecured property of the company.
- Once all the company’s assets are sold and creditors are proportionally satisfied, bankruptcy is terminated, and the company is deleted from the Commercial Register.
- The simplified procedure can apply if the company has assets and obligations not exceeding EUR 1,000,000 in the last five years.
Restructuring proceedings means a reorganization of the company’s obligations, which is insolvent or threaten to be insolvent, by keeping its business operation.
- Restructuring can be admitted by the bankruptcy court only if it is more favorable for the creditors than declaration of bankruptcy proceeding.
- Satisfaction of the claims of unsecured creditors must be at least 20 % higher than they would have obtained in bankruptcy proceeding.
- Motion for restructuring can be filed either by the company or by its creditor.
- The restructuring plan, approved by the court, changes the existing obligations of the company and its creditors.
- If the company breaches this plan and does not remedy such breach within 30 days from the written call of respective creditors, the restructuring plan is ineffective towards the creditor.
- Ineffectiveness of the plan means that the creditor may enforce its original claim (submitted in the restructuring) in the legally enforcement proceedings against the company.
In addition to the above, the company can undergo private or the public preventive restructuring to avoid impeding insolvency by preventing its illiquidity.
1.2 – Can a company obtain a moratorium whilst it prepares a restructuring plan? If so, what is the effect of the moratorium?
If the court declares the restructuring process, by operation of law all enforcement proceedings are terminated and there is a statutory ban on initiating any new enforcement proceedings or judicial proceedings against the company (already initiated judicial or arbitration proceedings are intercepted). This ban applies also to initiation of the insolvency proceedings and to the unilateral set-off of the claims against the company or enforcement of the security against the company (e.g. pledge).
If the company undergoes the public preventive restructuring process to avoid the insolvency, it can ask the court to grant it a temporary protection. The court will grant this moratorium only with the approval of the creditors.
The effects of the temporary protection (maximum period is six months) are among others as following:
- The company has no obligation to file for bankruptcy and the court will not declare the bankruptcy or restructuring of the company; already existing insolvency proceedings are intercepted.
- The company is protected against the enforcement proceedings; the existing ones are intercepted (to certain exceptions).
- The enforcement of the security rights against the company (e.g. a pledge) is not permitted.
- The company is protected against termination of the agreement by the notice or withdrawal for a delay occurring before the moratorium.
- The company is protected against the premature termination of the financing granted before the moratorium for failure of meeting the financial criteria.
1.3 – How long will it generally take for a creditor to achieve the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
The speed of the insolvency process depends on liquidity of the company’s assets and their composition. Liquidation depends on progress of monetization of the company’s assets. Sale of all company’s assets is generally made by the public tender and liquidation is completed by the distribution of the proceeds from this sale. Generally, it could take two to three years.
If the insolvent company has no assets, the court will decide on termination of the insolvency without any monetization. It could take one or two years.
1.4 – Does your jurisdiction make use of a distressed sale process by which the business/assets of the company can be sold?
No, there is no distressed sale process. The insolvency office-holder must immediately sale only assets that are in imminent danger of deterioration, destruction or other substantial impairment.
2. Insolvency office-holders and courts
2.1 – Who can act as an insolvency office-holder?
The insolvency office-holder is either a natural person or the company listed by the Ministry of Justice in the list of the insolvency trustees. The insolvency office-holder must meet several criteria, i.e. residency and citizenship in EEA country, full legal capacity, integrity and reliability, respective university education in field of law or economics and at least three years’ following experience in this field, special expertise preparation for becoming a trustee and no deletion from the list within the last five years. After meeting these legal criteria, the insolvency office-holder must successfully pass a special exam for the trustees.
2.2 – Who decides the identity of the insolvency office-holder, and what restrictions apply?
The Ministry of Justice keeps and maintains the list of the trustees and oversees their activities and further education.
The insolvency court appoints the insolvency office-holder from the list of the trustees in a decision on declaration of the bankruptcy or restructuring proceeding.
2.3 – Are insolvency cases heard by specialist judges, or in the general commercial courts?
The insolvency cases are heard before the commercial courts. There are eight first-instance insolvency courts and three appellate courts. In special cases (e.g. insolvency of the banks, insurance companies etc) there are only three first instance insolvency courts and one appellate court.
3. Position of directors
3.1 – To what extent do the directors of the company remain in control of its affairs during any of the procedures described above?
Once the bankruptcy proceeding begins, the director’s activity is limited to the common actions, i.e. actions that are necessary for operation of business. The main obligation is to cooperate with the insolvency office-holder. Once the bankruptcy is declared, the insolvency office-holder takes over all rights regarding assets of the company, their administration and further monetization.
Once the restructuring proceeding is initiated, the director cooperates with the insolvency office-holder and takes care only of the common legal actions. If the restructuring process is declared by the court, the court specifies which actions of the directors must be approved by the insolvency office-holder. The directors and their decisions are under supervision of the insolvency office-holder and the insolvency court as well. The creditor’s committee can even extend the scope of the activities that are under the supervision of the insolvency office-holder.
3.2 – Are there circumstances in which directors are obliged to file for insolvency proceedings? If so, when do those circumstances arise?
If the director finds out or ought to find out (acting with due and professional care) that the company is insolvent, he/she must file for the bankruptcy proceeding within 30 days. Therefore, if the director realizes that the company has at least two creditors with outstanding monetary claims of more than 90 days and insufficient coverage gap, he/she shall apply for the bankruptcy proceeding. The same applies if the director finds out the over indebtedness of the company.
3.3 – What are the risks facing the directors of an insolvent company?
If the petition for the bankruptcy proceeding is not timely filed, each director shall pay EUR 12,500 to the insolvency office-holder as the contractual penalty. This judicial decision declaring liability of the director also means that the respective director is disqualified from being a member of the statutory body of the company or any other companies for a period up to three years. The director can be liable for damages caused to the creditors or the company for delayed initiation of the insolvency and can face the criminal investigation.
4. Position of creditors
4.1 – What are the main forms of security over movable and immovable property?
The main form of security over immovable assets is a mortgage. The movables may be subject to the pledge, retention title or the guarantee (including the bang guarantee).
4.2 – How does the opening of insolvency proceedings affect the rights of secured creditors?
Once the bankruptcy or the restructuring proceedings begins, the secured creditors cannot initiate or continue in the security enforcement proceedings (there are certain exceptions in case of bankruptcy proceeding).
The secured creditor must timely submit the claim and its security within 45 days (in case of bankruptcy proceeding) or 30 days (in case of restructuring proceedings) from their declaration in the Commercial Bulletin. Otherwise, the security right ceases to exist.
If the security is timely applied, the secured creditor is satisfied from the proceeds of sale of the secured assets and the insolvency office-holder may sell such assets only with the creditor’s approval.
4.3 – Where a debt owed to a secured creditor exceeds the value of the security, is the secured creditor entitled to claim for the shortfall?
Yes. If the value of the security is lower than the amount of the debt, the insolvency office-holder will consider this anticipated amount of the shortfall as an unsecured claim. The anticipated amount of the shortfall allows the secured creditor to proportionally profit from the sale of the unsecured assets and the secured creditor will have the same rights as an unsecured creditor.
4.4 – Which classes of creditor are given preferential status? Are any classes subordinated?
In case of the bankruptcy proceeding, there is a list of the claims that have a preferential status. Generally speaking, these are the claims of the insolvency office-holder, the claims of the employees, tax, customs or health public insurance claims, recovery of the costs of the proceedings, aliments etc.
In case of the restructuring proceeding, the claims that arose against the company during the restructuring proceedings, employment claims that arose during the calendar month in which the restructuring proceedings were initiated, the insolvency office holder’s remuneration and non-monetary claims have preferential status and are not affected by the restructuring plan.
The subordinated claims are claims following from the subordinated agreements, i.e. from the written contracts between a company and creditor with subordination obligations. The same applies to the claims of the persons affiliated with the company (e.g. shareholders, creditors, employees, relatives etc).
4.5 – Is there a date by which creditors must make claims in the insolvency proceedings? If so, what are the consequences of failing to claim by that date?
In the bankruptcy proceedings the claims must be submitted within 45 days from declaration of the bankruptcy in the Commercial Bulletin. Making a claim after this period is possible until the publication of the final plan of distribution proceeds of sale. However, in this case the security right ceases to exist and the creditor cannot exercise its voting rights.
In the restructuring process, the claim must be lodged within 30 days from declaration of the restructuring process in the Commercial Bulletin. Failure to meet this deadline leads to unenforceability of the claim (i.e. the claim cannot be successfully enforced against the company before the court or otherwise).
4.6 – Are contractual rights of set-off and/or netting effective in insolvency?
In the bankruptcy proceedings the below-mentioned claims are excluded from set-off:
- a claim of the creditor against the company that arose before the bankruptcy cannot be set-off against the company’s claim towards the creditor that arose after the bankruptcy, the same applies regarding conditional claims,
- a claim not submitted in the bankruptcy proceeding, a claim assigned after the bankruptcy proceeding and a claim acquired based on opposed legal action cannot be set-off against any of the company’s claims,
- a claim regarding the director’s responsibility for delayed submission of the bankruptcy motion may not be subject to set-off to any claim.
In the restructuring proceeding there is a general ban on set-off regarding all claims against the company that arose before restructuring. The creditor therefore cannot unilaterally set-off any of its claims against the company. However, a set-off based on agreement or set-off made by the company is permissible as well as set-off of the claims arising after the restructuring proceeding.
4.7 – Are contract terms permitting termination of a contract by reason of insolvency (“ipso facto clauses”) effective?
Once the bankruptcy is declared, the contract can be terminated based on below conditions:
- The creditor may withdraw from the contract (or its respective unfulfilled part) with the insolvent company if:
- the creditor has fulfilled (even partially) its obligations and the company did not or not fully fulfil its obligations
- neither the company nor the creditor fulfilled its obligations or both fulfilled the obligations partially.
- The withdrawal applies only to the unfulfilled parts of the contract.
- The insolvent company may withdraw from the contract with the creditor under similar rules.
If the contract refers to repeated or continual activity, the insolvency office-holder may terminate the contract by a notice within a notice period of two months.
In the case of restructuring, contractual provisions permitting termination of the contract by reason of restructuring or bankruptcy are not effective.
4.8 – Are retention of title clauses enforceable and (if applicable) what are the main requirements for enforceability?
Retention of title clauses remain enforceable when it is agreed in the purchase contract. The retention title clause must be agreed in writing and must precisely define the goods in questions. Applicability of this clause however depends on the fact whether the goods are in physical possession of the company or not.
If the item is at the disposal of the company, the insolvency office-holder (the company acts as a buyer) can decide that he/she will pay the purchase price, or return the item to the creditor. If the company is a seller, the creditor as the buyer can either return the item or pay the purchase price.
If the item is no longer at the disposal of the company, the creditor can only file the unsecured insolvency claim.
The retention of title in restructuring can be subject to the restructuring plan.
4.9 – Are foreign creditors treated equally to domestic creditors?
Yes, the EU creditors must follow the Regulation EU No. 2015/848.
5. Setting aside transactions
5.1 – What are the main transaction avoidance provisions applicable to the proceedings referred to above?
The concept of setting aside transactions apply only in case of a bankruptcy proceeding
- transactions at an undervalue, i.e. donation agreements or agreements which do not correspond with the standard market price (concluded one year prior to the commencement of bankruptcy proceedings or three years prior to the commencement of bankruptcy proceeding in the case of the transaction with an affiliated person or even five years in case of certain criminal conduct);
- preferences, i.e. any action by which the company prefers its interests or interests of any of its creditors to interests of other creditors, e.g., waiver of the company’s right or entitlement, debt forgiveness, premature fulfilment of the monetary claim (even partially) which is mature by declaration of bankruptcy, subsequent amendment or changes in contract in disfavour of the company or other preferential treatment (concluded one year prior to the commencement of the bankruptcy proceedings or three years prior to the commencement of bankruptcy proceeding where the preferred creditor is affiliated with the company or even five years in case of certain criminal conduct);
- penalizing actions with intention of disadvantaging other creditors, if such intention was known or must have been known to the other party (concluded five years prior to the commencement of bankruptcy proceedings or even ten years in case of certain criminal conduct);
- transactions (except regular transactions) after the cancellation of bankruptcy proceeding and in the case of repeated bankruptcy declared within six months.
5.2 – Who is entitled to challenge transactions under these provisions?
The insolvency office-holder and the creditor if the insolvency office-holder does not challenge the transaction based on a creditor’s motion.
6. Cross-border insolvency
6.1 – Do your courts recognize insolvency proceedings commenced in the courts of other jurisdictions?
Yes, the insolvency proceeding commenced in any EU member state will automatically be recognised under EU insolvency regulations.
Slovak courts will recognise foreign insolvency proceedings respecting the mutual reciprocity of recognition. Recognition is based on a motion of a foreign insolvency office-holder who must demonstrate to the court (i) the commencement of insolvency proceeding, (ii) the appointment to the function as the insolvency office-holder, (iii) legal interest on such recognition in Slovakia. The recognition is not permissible if there is another foreign or domestic insolvency proceeding.
6.2 – If so, what assistance can your courts provide, following recognition?
A recognised foreign insolvency decision effects are based on foreign law, unless a Slovak court decides that some effects do not apply or may extend some effects based on Slovak law. If the bankruptcy or restructuring proceeding is declared based on Slovak law, the court will automatically revoke recognition of the foreign decision.
6.3 – Is it possible to commence insolvency proceedings in relation to a foreign company?
Yes, if the company has its assets in Slovakia.
7. Other matters
7.1 – Please consider whether there is any other feature of your country’s insolvency regime of which a lender, investor or purchasers of distressed debts or businesses should be aware? For example, are there any mistakes that foreign creditors often make?
Slovak law recognises the concept of liability of a controlling company (i.e. mother company) for the damage caused by the insolvency of the controlled company (i.e. subsidiary company). If the mother company significantly caused the insolvency of its subsidiary company, the mother company can be liable for damage caused to the creditors of the subsidiary company. It applies also in cases when the bankruptcy or the enforcement process is terminated for lack od assets of the subsidiary company.
7.2 – Are there any other stakeholders or entities (eg governmental or regulatory) which may influence the outcome of any restructuring?
The outcome of the restructuring is influenced by the major creditors, especially the banks (majority of companies undergoing the restructuring are financed by the banks). The major creditors have majority of voting rights and therefore determine the outcome of quora necessary for the acceptance of the restructuring plan. The major creditors are usually also members of the creditors’ committee which give binding instructions to the insolvency office-holders.
7.3 – Are there currently any proposals for significant reform of your insolvency laws?
No.
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